Judge blocks North Carolina attempt to get Amazon sales data

A federal judge has ordered North Carolina to back off its requests for Amazon …

Like many states, North Carolina collects a “use tax” on its residents' out-of-state purchases; it's essentially a sales tax, and is charged at the same rate. As Internet commerce took off in 1999 and more money went out of state, North Carolina moved the use tax from a separate form and put it right in the middle of an individual's tax return. To be extra helpful, the state also provided a table that filers could use to estimate how much tax they owe. After all, who has a handy list of every item they ordered through a catalog or over the Internet for a given year? In 2009, the tax was expanded to cover digital purchases of music, movies, and books.

The state estimates that each resident owes 0.0675 percent of taxable income to cover the tax (those who don't want to accept this estimate are free to enter their own number, but lying about the amount opens you to an audit). This is pretty low—with $45,000 of taxable income, the use tax is $30—but it can still be hard to get people to pay up when most residents consider out-of-state purchases to be tax-free.

So North Carolina has been auditing large out-of-state retailers, most notably Amazon. These retailers cannot be required to collect the use tax unless they have a physical presence in the state, but some do voluntarily as a service to their customers. North Carolina wants to make sure that it's getting its fair share from Amazon purchases, so it asked Amazon in December 2009 to turn over seven years of customer data. If Amazon shipped a product to a North Carolina address, the state wanted to know about it.

North Carolina's estimated use tax table

Amazon complied with the request, and even included the Amazon Specific Identification Number for every purchase, so that the state would know the name of every item. Crucially, however, Amazon left out names, addresses, phone numbers, and other identifying information. Because the state claimed to be looking into Amazon's finances and not those of its residents, this should have been enough information to satisfy the government.

It was not. On March 19, 2010, the state Department of Revenue requested further information from Amazon, this time asking for names and addresses. Although the state said it did not need or want specific item information, and that it had removed the initial Amazon database dump from its computers, it continued to hang onto the CDs holding this information. Combining that information with names and addresses would allow the state to see a person's entire seven-year Amazon purchase history.

Amazon sued in Washington state, asking a federal judge to block North Carolina's request on First Amendment grounds. It did not object to the state's request for tax information, but it refused to turn over personally identifying information so long as the state could link this to individual purchases.

In a new ruling, Judge Marsha Pechman agreed with Amazon. “The First Amendment protects a buyer from having the expressive content of her purchase of books, music, and audiovisual materials disclosed to the government,” wrote Pechman. “Citizens are entitled to receive information and ideas through books, films, and other expressive materials anonymously... The fear of government tracking and censoring one's reading, listening, and viewing choices chills the exercise of First Amendment rights."

It's a victory for Amazon and the American Civil Liberties Union, which also intervened in the case, but it's not a blanket ban on turning over names and addresses. Instead, the judge said that the request violates the First Amendment “only as long as the DOR [Department of Revenue] continues to have access to or possession of detailed purchase records obtained from Amazon.”

If the state destroys the original dataset, Amazon would have to comply with a further request to turn over names, addresses, purchase amounts, and a general product category ("books," etc.).

Work out the numbers, including a calculation for the net present value of money. Then show me a specific example of a tax scheme (for any wage level) where it's better to pay now instead some vague time in the future - probably after death, if at all.

You can pay 8% when you are alive, or starting at 18% when you die (reaches as high as 55%). Sounds like a pretty good motivator to me. The argument that people will just 'save the money forever' is ludicrous, because you don't *get* to keep your money, estates are taxed higher than a sales tax would be (going out on a limb, here, but I'd wager that most often the estate tax rate is higher than the effective income tax rate would be if the estate were taken as income via an inheritance or gift - and I don't think anyone would complain if rich guy A gave all his money to his kids before he died and paid 36% on it at that time - with no phase-outs). You'd have to be actively working to defraud the government to make that happen (serial marriages is the most commonly thought of loophole). It would be trivial to create a limit on spousal transfers of an estate to prevent that.

Stop making assumptions and actually look at the fraction of income the working poor, middle class, and high wage earners actually pay in taxes, and look at the difference a progressive income tax makes vs a sales tax (even with food and some other necessities excluded). Why do you think rich people prefer sales taxes to income taxes?

There are states that exclude food, clothing, and some basic services that highly impact low-income families (like child care).

At that point it's entirely possible that a low-income individual may pay less, as a percentage of their earned income over a lifetime, in sales tax than a high-income individual (remembering that other items that drive personal spending, like rent, are also generally not taxed).

The more "necessities" you exempt from the tax, the less regressive (or not regressive at all) it tends to get...since poor folks spend more on necessities, and wealthier folks spend more on "luxuries" (to include low-cost luxuries like videogames and such).

But again, this requires that you accept that a wealthy person's savings will be sales-taxed eventually, either in their retirement or through their heirs.

Work out the numbers, including a calculation for the net present value of money. Then show me a specific example of a tax scheme (for any wage level) where it's better to pay now instead some vague time in the future - probably after death, if at all.

Oh, I have no desire to go through that much work to defend a tax I don't support. I think overall most sales taxes probably are regressive, I just think it's not as simple as some make it out to be.

There are states that exclude food, clothing, and some basic services that highly impact low-income families (like child care).

At that point it's entirely possible that a low-income individual may pay less, as a percentage of their earned income over a lifetime, in sales tax than a high-income individual (remembering that other items that drive personal spending, like rent, are also generally not taxed).

The more "necessities" you exempt from the tax, the less regressive (or not regressive at all) it tends to get...since poor folks spend more on necessities, and wealthier folks spend more on "luxuries" (to include low-cost luxuries like videogames and such).

But again, this requires that you accept that a wealthy person's savings will be sales-taxed eventually, either in their retirement or through their heirs.

Work out the numbers, including a calculation for the net present value of money. Then show me a specific example of a tax scheme (for any wage level) where it's better to pay now instead some vague time in the future - probably after death, if at all.

Oh, I have no desire to go through that much work to defend a tax I don't support. I think overall most sales taxes probably are regressive, I just think it's not as simple as some make it out to be.

Work out the numbers, including a calculation for the net present value of money. Then show me a specific example of a tax scheme (for any wage level) where it's better to pay now instead some vague time in the future - probably after death, if at all.

You can pay 8% when you are alive, or starting at 18% when you die (reaches as high as 55%). Sounds like a pretty good motivator to me. The argument that people will just 'save the money forever' is ludicrous, because you don't *get* to keep your money, estates are taxed higher than a sales tax would be (going out on a limb, here, but I'd wager that most often the estate tax rate is higher than the effective income tax rate would be if the estate were taken as income via an inheritance or gift - and I don't think anyone would complain if rich guy A gave all his money to his kids before he died and paid 36% on it at that time - with no phase-outs). You'd have to be actively working to defraud the government to make that happen (serial marriages is the most commonly thought of loophole). It would be trivial to create a limit on spousal transfers of an estate to prevent that.

Stop making assumptions and actually look at the fraction of income the working poor, middle class, and high wage earners actually pay in taxes, and look at the difference a progressive income tax makes vs a sales tax (even with food and some other necessities excluded). Why do you think rich people prefer sales taxes to income taxes?

So your argument is that the rich doctor the income tax system to make sure that they can pass on their wealth; and that the rich are failing to doctor the tax system to get a sales tax. If the rich really ride up front (and they do, the majority of elected officials in the federal government belong to the upper class or will when they die) and they prefer a sales tax, then why on earth do we have an income tax? You can't have it both ways.

So your argument is that the rich doctor the income tax system to make sure that they can pass on their wealth; and that the rich are failing to doctor the tax system to get a sales tax. If the rich really ride up front (and they do, the majority of elected officials in the federal government belong to the upper class or will when they die) and they prefer a sales tax, then why on earth do we have an income tax? You can't have it both ways.

The income tax (along with the capital gains tax) has been doctored to be not so progressive, and the rich have to compromise with the much more numerous not-rich. Republicans keep trying though, but a significant number of rich folks don't think it's necessary to always hurt others.

Governments are not run solely on social policy -- sales (and, for that matter, property taxes) are far more stable sources of revenue than income tax. An over-dependence on income tax can get you into situation's like California's, where their revenue grows at fast rates during booms and drops off a cliff during recessions.

Karoch Sharon wrote:

If the rich really ride up front and they prefer a sales tax, then why on earth do we have an income tax?

Sales tax is actually the least disliked tax among the majority of Americans, namely because (1) it's seen as more "fair" (particularly in areas where basic necessities are exempted -- if you don't like it, don't buy stuff) and, more importantly, (2) it's invisible. It's collected in such small increments that people never notice it, and have no idea how much is collected from them. This also means that the political repercussions for raising it are smaller than the other taxes.

Incidentally, in some so-called socialist countries, more revenue comes from the VAT than does from income tax.

Ican't belive you guys are worried about $1 for sales less that $2200.... If the UK ran this it'd be like 25% for all sales under £1500, etc... £0.60 is nothing I just paid £35 import tax on a EF 50mm F1/1.8 worth only like £70

Ican't belive you guys are worried about $1 for sales less that $2200.... If the UK ran this it'd be like 25% for all sales under £1500, etc... £0.60 is nothing I just paid £35 import tax on a EF 50mm F1/1.8 worth only like £70

Yes, but isnt the UK also the same country that that allows wealthy Britons and resident foreigners to simply offshore their income and pay no tax on it? That's why they come at you for your camera lens - you're a sitting duck so to speak.

These sort of taxes are basically govt piracy, particularly when levied on sales that the govt has basically contributed nothing to. It's really disturbing that they want go even further and do a full "1984", where they record a list of what you buy and who you bought it from.

Governments are not run solely on social policy -- sales (and, for that matter, property taxes) are far more stable sources of revenue than income tax. An over-dependence on income tax can get you into situation's like California's, where their revenue grows at fast rates during booms and drops off a cliff during recessions.

Meh. I hear the exact same arguments in states with a sales tax and no income tax, only with roles reversed. Honestly, it seems sensible to me to diversify by having all three taxes (sales, property, income), and adjust the rates of each as necessary to maintain the desired level of revenue.

I understand why sales tax was not collected in the nascent period of the internet, but why it's not collected at this point, at least State level sales tax, is beyond me. It could very easily be handled and I don't think it would stifle development any more.

North Carolina has 100 counties. Statewide, the current sales & use tax rate is 5.75%. An additional 2% is added in all counties, except Alexander, Catawba, Cumberland, Haywood, Hertford, Lee, Martin, New Hanover, Onslow, Pitt, Randolph, Rowan, Sampson, Surry, and Wilkes Counties, which levy a 2.25% local rate and Mecklenburg County, which adds a ½% transportation tax to the standard 2% local rate.

A 2% local rate of sales or use tax applies to retail sales and purchases of qualifying food; the ½% Transit County sales and use tax for public transportation and the additional 0.25% local rate in the fifteen counties listed above does not apply. Purchases of nonqualifying food are subject to the general rate of State tax and the applicable local tax. For additional information on the taxation of food, refer to Section 19 of the Sales and Use Tax Technical Bulletins.

A 3% State rate of sales or use tax applies to retail sales of aircraft and boats with a maximum tax of $1,500 per article. A 2% State rate of sales or use tax applies to retail sales of manufactured homes with a maximum tax of $300 per article. A 2.5% State rate of sales or use tax applies to sales of modular homes.

Every time I make a purchase online from a retailer who collects NC sales tax, despite entering my ZIP code and street address, I have to then load another screen where I have to select my county and municipality. If it's annoying and inconvenient for me, I can't imagine the additional workload it's created for companies that want to do business in NC.

In addition, the NCDoR has been chasing sales tax for online affiliate sales (if someone in Wisconsin buys an item from a retailer in Arizona, through a link on my site, which could be hosted in Delaware/Colorado/Texas/etc, North Carolina wants a cut of the sales tax, in addition to any income taxes), which has resulted in all of the online affiliate programs dropping NC residents and the state taking a net loss in income tax revenue.

Ziontrain wrote:

First, the State of North Carolina and its residents are on average the type who claim that "government is intruding too far into people's lives". I guess "principles" should never get in the way of trying to steal money you've done nothing to earn.

Thanks for the broad-bush assumptions -- NC is home to the the highest per-capita concentration of PhDs of anywhere in the country (it used to be of anywhere in the world), it's the 10th largest state, by population, in the U.S. It's remarkably progressive -- 2 republican governors since the Civil War and it's consistently ranked as one the top places to live, raise a family and retire. Purple on the national level (having gone for Obama in 2008), like most "blue" states, NC receives less than $1 in federal funding for ever $1 sent to D.C.

Like many states, North Carolina collects a “use tax” on its residents' out-of-state purchases; it's essentially a sales tax, and is charged at the same rate.

I am not a fan of sales taxes, but I get truly annoyed by "use taxes" that are, as the article says, simply a sales tax in all but name.

According to my understanding of the US Constitution, a state is forbidden to tax interstate commerce. I do understand the main intent was to not allow tariffs on goods passing through the states, or using taxes for protectionism for goods on a state by state basis. But it also effectively forbids a state from collecting sales tax on goods you purchase from another state.

So they just change the name to "use tax" and collect a sales tax on interstate goods anyway. Go figure.

IANAL, and there is likely stuff going on here that I am overlooking, but a "use tax" seems to me to be a case of "It looks like a duck, walks like a duck, and quacks like a duck, but it can't be a duck, because a duck would be illegal".

Being a NC citizen, this "use" tax is silly to me. If I go to Virginia and buy something and bring it back, I do not have to pay NC tax on it. So if I buy something online in another state and have it shipped to me, that is some how different?

No, if you read your tax forms carefully, you're almost certainly supposed to be paying the same use tax on items you buy out-of-state in person.

Being a NC citizen, this "use" tax is silly to me. If I go to Virginia and buy something and bring it back, I do not have to pay NC tax on it. So if I buy something online in another state and have it shipped to me, that is some how different?

No, if you read your tax forms carefully, you're almost certainly supposed to be paying the same use tax on items you buy out-of-state in person.

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I also believe you would find your "use" tax laws are be written in such a way that it covers essentially all forms of out-of-state purchases. Buying in person or mail order (catalog, shopping channel, tv adds, or over the internet) are almost certainly both covered by use tax laws.

In any case, you are almost certainly supposed to pay use tax on in person purchase too, although few people voluntarily do so. The states are asking for mail order records, because places like Amazon need to collect personal information to complete the sale, where for most in person purchases, such information is not required (although that has not always stopped some states from attempting to obtain and use in person sales records).

For example, when I was young (long, long ago), for a while Idaho tried collecting sales information from Oregon branches of furniture store chains with stores in both Idaho and Oregon (Idaho has sales and use taxes, Oregon neither) and sent use tax notices to Idaho residents who bought furniture in Oregon, but did not pay use taxes on the income tax forms. So states trying to collect unreported use taxes is not new.

I believe some states do adjust use taxes by charging you the difference between the taxes you paid to another state and what that state charges, which would affect in person purchases if the other state has a sales tax, perhaps even taking your use tax liability down to zero, if the other state's taxes are high enough.

But many (most?) states want you to pay their use tax on top of whatever sales tax you already paid. That does seem excessive to me.

If the USA and all the states did away with the INCOME TAX and used a Value Added Tax (VAT), there would be no more squabbles. The result would be a lower tax collections on average since all the freeloaders would have to pay the tax. Right now, many businesses hide some of their income and don't pay tax. With a VAT, nobody could escape paying tax!